I was so sorry to miss the CIOT/IFS debate on the powers of HMRC and the responsibility of citizens in today's world, due to a vote in Parliament. It won’t have escaped anyone’s notice that Parliamentary business and timing is a bit difficult to predict at the moment!
The House of Commons Treasury Select Committee has heard a range of concerns about HMRC’s powers during the course of our inquiry into the ‘Conduct of Tax Enquiries and the Resolution of Tax Disputes’ including whether they are the right powers and whether they are used appropriately.
We have taken evidence from a range of people with different types of engagement with the tax system, from those who have taken part in tax avoidance schemes and are unhappy about the use of relatively recent counteraction powers such as Follower Notices, Accelerated Payment Notices and of course the Loan Charge to people who are not trying to do anything clever or sophisticated with their tax affairs but have simply fallen foul of a system that they find too hard to navigate because of their own particular circumstances or difficulties.
Over recent years, the public conversation about HMRC powers has tended to swing in two directions. Campaigns led by NGOs have called for HMRC to have greater powers and to be more assertive in tackling wrong-doing by big multinationals or the very wealthy. But on the other hand, there are those who want HMRC’s existing powers to be curtailed or directed at someone else.
Without wishing to diminish in any way the distress of people who are now very worried by the situation they face, I find the vocabulary that is often used, and the way in which their complaints are expressed, very revealing for what it says about their understanding of the role tax plays in society.
When people talk in all sincerity in terms of being “penalised” or “punished” by being asked to pay tax that one would normally expect to pay on earnings, it leads me to wonder what has fostered that attitude and distanced people so far from the notion of tax being, in the famous words of Oliver Wendell Holmes Jr, “the price we pay for civilization”.
There is undoubtedly a lot of value to be had in examining the detailed workings of HMRC powers and the effect that has on the rights of individual taxpayers in specific circumstances. It is right that the exercise of power by any arm of government is kept under close watch. But I believe there is also a wider conversation to be had about the existence of a broader responsibility across society and a wider civic duty to help keep the UK’s tax base stable and secure.
Government gives powers to HMRC so that it can collect the money needed to fund public expenditure and to deliver the goods that society benefits from. It is clearly HMRC’s responsibility to carry out its duties to administer and collect tax professionally and without fear or favour. But that does not mean that HMRC is the only party responsible.
How should that responsibility be shared across different parts of society - including by tax professionals as well as those of us in Parliament?
In the current controversy over the loan charge it is hard to find anyone who comes out of it terribly well. From the outside, it is hard to see how anyone involved in the schemes could not have understood the risks in trying to avoid tax. Nevertheless, many, although not all, of the people who used the schemes now feel that they were badly advised or misled. And HMRC has clearly been challenged by the widespread use of the schemes and has taken an extraordinarily long time to get to grips with them.
But it is not a situation that has come about solely because of shortcomings in law in taxing earnings. Tax avoidance does not happen because somebody accidentally stumbles into a loophole and can’t quite work out how they got there, or whether they should really be there at all. One thing that has really been at the forefront of the representations made by people faced by the loan charge and that has been repeated time and time again is the reliance they placed on the professional reputation of advisers who introduced them to the schemes. They place huge significance on the recommendations given by their accountants, and on the assurances about the legality of the schemes given by QCs. There is a huge misunderstanding about the significance of being told that a scheme was 100 per cent legal.
And, sadly, we are now hearing from people who followed recent advice from promoters and have sent them a large amount of money, supposedly representing a substantial proportion of their outstanding loan on the understanding that it would mean that they wouldn’t have to pay the loan charge. But they have heard nothing from the promoter since and now have no idea what to do come April.
HMRC and the professional bodies have all told us that there have been fundamental changes in the tax profession in recent years and that only a small handful of advisers on the edge of the profession would get involved in promoting tax avoidance schemes now. I expect that there will be advisers, within CIOT and with the accountancy and legal professions, whose approach to tax avoidance has changed markedly over the years. The Professional Conduct in Relation to Taxation standard on tax planning arrangements clearly looks to combine the wider public interest with protecting client’s interests.
But I would set a gentle challenge to the profession to consider whether, in setting that ethos and communicating it to your own members, is there scope for communicating it more effectively to the wider public too? Not because you have to, but because in setting out clearly for the public some basic facts about the public interest in a stable tax system and the risks to them of falling for the marketing ploys of advisers not bound by your code, you would help to make the tax system a better place?
HMRC’s exercise of powers is subject to Parliamentary scrutiny, but members of Parliament can only carry out that function properly if CIOT members and others are willing to act as our eyes and ears. If things are going wrong, we need to hear about it and we need your help to identify ways to put things right.
The IFS and CIOT are frequent flyers with the Treasury Committee and are very open and generous with the help they give us. The Low Incomes Tax Reform Group has recently given us evidence that has prompted HMRC to review the way it deals with vulnerable and unrepresented customers involved in tax disputes. I know the prospect of engaging with Committees can be daunting but it really helps us to hold HMRC and Treasury ministers to account and encourage change for the better.
Guest blog by Nicky Morgan MP, Chair of the Treasury Select Committee